Highlight of Business Operations:

For the third quarter of 2010, the Company generated free cash flow of $259.6 million, an increase of $283.2 million from a net cash outflow of $23.6 million for the same prior-year period and for the nine months ended September 30, 2010, free cash flow of $1.41 billion increased 165% from $532.4 million for the same prior-year period, principally reflecting higher advertising, affiliate and subscription fee revenues, and the timing of programming spending, partially offset by higher payments for taxes. The Company generated cash flow from operating activities of $1.57 billion for the nine months ended September 30, 2010, up $1.01 billion versus $567.9 million for the comparable prior-year period, which included a $150.0 million reduction to the amounts outstanding under the Company's accounts receivable securitization program. Free cash flow, a non-GAAP financial measure, reflects the Company's net cash flow provided by operating activities before increases and decreases to the accounts receivable securitization program and less capital expenditures. See "Reconciliation of Non-GAAP Financial Information" on pages 40 41 for a reconciliation of net cash flow provided by operating activities, the most directly comparable financial measure in accordance with accounting principles generally accepted in the United States of America ("GAAP"), to free cash flow.

At September 30, 2010, the Company's cash balance was $1.07 billion, an increase of $355.3 million from $716.7 million at December 31, 2009. On October 8, 2010, the Company issued $300.0 million of 4.30% senior notes due 2021 and $300.0 million of 5.90% senior notes due 2040 and used the net proceeds to repurchase, through a tender offer, $55.1 million of its 8.625% debentures due 2012 and $194.9 million of its 5.625% senior notes due 2012. The Company will also use the net proceeds to redeem, on November 5, 2010, $335.0 million of its 7.25% senior notes due 2051. Additionally, on November 2, 2010, the Company called for the redemption on December 29, 2010 of its $543.9 million of 6.625% senior notes due 2011. These actions, along with the debt activity during the first half of 2010, are expected to result in annualized net interest expense savings of approximately $90 million.

Selling, general and administrative ("SG&A") expenses, which include expenses incurred for selling and marketing costs, occupancy and back office support, increased $3.1 million to $623.5 million for the three months ended September 30, 2010 and increased $70.4 million, or 4%, to $1.91 billion for the nine months ended September 30, 2010. Comparability of SG&A expenses for the three and nine months ended September 30, 2010 and 2009, was impacted by settlements of $90.2 million and $28.0 million, respectively, related to the favorable resolutions of certain disputes regarding previously disposed businesses. The increase in SG&A expenses reflects higher incentive compensation accruals, higher advertising expense, higher selling expenses driven by the advertising revenue growth, and the favorable impact in 2009 from the termination of a real estate lease arrangement, partially offset by lower pension and postretirement benefit costs and the impact of the aforementioned settlements. Pension and postretirement benefits costs decreased $12.3 million to $44.1 million for the third quarter of 2010 and decreased $37.5 million to $132.3 million for the nine months ended September 30, 2010 versus the comparable prior-year periods principally due to a lower discount rate and pension plan asset performance in 2009. SG&A expenses as a percentage of revenues for each of the three and nine months ended September 30, 2010 and 2009 was 19%.

During the nine months ended September 30, 2010, the Company recorded restructuring charges of $66.0 million, reflecting $51.1 million of severance costs associated with the elimination of positions and $15.6 million of contract termination and other associated costs, partially offset by the reversal of $.7 million as a result of changes in estimates of previously established restructuring accruals. During the year ended December 31, 2009, the Company recorded restructuring charges of $22.8 million, reflecting $20.8 million of severance costs and $6.7 million of contract termination and other associated costs, partially offset by the reversal of $4.7 million as a result of changes in estimates of previously established restructuring accruals. During the year ended December 31, 2008, the Company recorded restructuring charges of $136.7 million, which reflected $127.5 million of severance costs and $9.2 million of contract termination and other associated costs. As of September 30, 2010, the Company had paid $148.0 million of the severance costs and $13.7 million of the contract termination and other associated costs. The Company expects to substantially utilize the remaining reserves by the end of 2011.

For the three months ended September 30, 2009, "Other items, net" of $15.0 million principally reflected foreign exchange gains of $19.2 million partially offset by $3.3 million of losses associated with securitizing accounts receivables. For the nine months ended September 30, 2009, "Other items, net" reflected a net loss of $.4 million primarily consisting of losses of $4.6 million associated with securitizing accounts receivables partially offset by foreign exchange gains of $4.5 million.

The provision for income taxes was $178.6 million and $79.7 million for the three months ended September 30, 2010 and 2009, respectively, and $291.3 million and $145.4 million for the nine months ended September 30, 2010 and 2009, respectively. The provision for income taxes for the three months ended September 30, 2010 and 2009 included tax benefits of $18.2 million and $41.8 million, respectively, from the settlements of income tax audits. The provision for income taxes for the nine months ended September 30, 2010 included a $62.2 million reduction of deferred tax assets associated with the 2010 Patient Protection and Affordable Care Act, partially offset by a $26.4 million reversal of previously established deferred tax liabilities and a $28.1 million tax benefit from the settlements of income tax audits. The provision for income taxes for the nine months ended September 30, 2009 included a tax benefit of $45.4 million from the settlements of income tax audits, which was more than offset by the reversal of certain international net operating loss carryforwards of $13.4 million and a reduction of deferred tax assets associated with stock-based compensation of $42.3 million. This reduction reflects the difference between the estimated tax benefit recognized based on the grant date fair value of the stock-based compensation award versus the actual tax benefit realized based on the market value on the date of vest.

Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC.
Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.